1. 805- Introduction to Management
Chapter 3:
The external environment
page 22

2. Learning outcomes This chapter will enable you to:
Identify the external forces which may influence an organisation;
Recognise the importance of monitoring the external environment;
List sources of environmental information.

3. Open and closed systems
EXTERNAL
THE ORGANISATION
THE
ORGANISATION
Closed system
ENVIRONMENT
Open system
A closed system is not influenced by the external environment ; an open system is influenced by many different forces in the external environment

4. Environmental factors
Physical-natural: geographical location, climate & natural disasters.
Socio-cultural: attitudes & behaviours of people within society
Competitive:
direct competitor - offers the same or very similar products.
indirect competitor – does not necessarily offer the same goods or services, but still competes for consumer’s dollars
Political/legal – the way in which a country is governed and the laws that are in effect. E.g. Employment Relations Act 2000, Human Rights Act 1993, Resource Management Act.
Economic – in times of economic hardship , consumers buy less less profit employees laid off.
Technological - computer networks, the internet, mobile phones

5. Physical-natural factors
Can have enormous impact – e.g. business devastated by flood, prolonged drought.
See page 24 and page 25: Case study: Westwood Farms, -right place, right time, right crop.
Social-cultural factors
Language differences, the value of education, the role of women in society, respect for all citizens, and religious and ethical beliefs.
See page 26 and page 27: Celebrating and promoting diversity: goodwill or good business?

6. Political-legal factors
Competitive factors
The number and nature of an organisations competitors can have a powerful influence, and not always negative – can make a business more innovative and productive.
See pages and page 29: Case Study: NZ Post versus couriers.
Political-legal factors
Coalition government such as those under MMP, result in a more diverse range of views. However uncertainty for business can develop as consensus among the law makers can take longer.
See pages

7. Technological factors
Economic factors
The number of people buying goods or services, the amount of money in circulation, interest rates and the availability of skilled staff are all influenced by the state of the economy.
See page 31.
Technological factors
Technology has increased the number of markets and opportunities for business and many consumers have also benefited from this – Phone banking, internet shopping, online auctions e.g. TradeMe, Zillion.
See pages 31 – 32.

8. Monitoring the external environment
An organisation must counteract the negative forces/factors generated from outside.
If the forces are positive, then management must take advantage of the situation.
See pages Case study: Pulling the wool over their eyes.

9. Common sources of environmental information
Newspapers, both national & international
Television & radio broadcasts
Internet & podcasts
Specialist organisations, NIWA, Statistics New Zealand
Journals and magazines
Market research organisations

10. Chapter summary
Organisations do not operate in a vacuum – they influence, and are influenced by, the external environment.
There are six main forces which influence organisations:
Physical
Socio-cultural
Competitive
Political-legal
Economic
Technological
Organisations need to monitor the external environment, and take action based on the information they obtain.

11. Chapter summary questions
What is meant by the term socio-cultural factors?
What is the difference between direct competitor and an indirect competitor?
How can a business take account of a changeable and often unpredictable climate?
If you were to provide a service for a particular migrant community what steps could you do to increase the likelihood of success.
What steps can a business take to lessen the impact of a weak economy?
Name fours ways an organisation can monitor external factors.